Goosehead Insurance, Inc (NASDAQ:GSHD) Q1 2023 Earnings Call Transcript

Goosehead Insurance, Inc (NASDAQ:GSHD) Q1 2023 Earnings Call Transcript April 26, 2023

Goosehead Insurance, Inc beats earnings expectations. Reported EPS is $0.17, expectations were $0.04.

Operator: Thank you for standing by. This is the conference operator. Welcome to the Goosehead Insurance First quarter 2023 Earnings Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Dan Farrell, VP, Capital Markets. Please go ahead.

Dan Farrell: Thank you and good afternoon. Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements, which are based on the expectations, estimates and projections of management as of today. Forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict and which could cause the actual results to differ materially from those expressed or implied in the forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer all of you to our recent SEC filings for a more detailed discussion of the risks and uncertainties and that could impact future operating results and financial condition of Goosehead Insurance.

We disclaim any intentions or obligations to update or revise any forward-looking statements, except to the extent required by applicable law. I would also like to point out that during this call, we will discuss certain financial measures that are not prepared in accordance with GAAP. Management uses these non-GAAP financial measures when planning, monitoring and evaluating our performance. We consider these non-GAAP financial measures to be useful metrics for management and investors to facilitate operating performance comparisons from period to period by excluding potential differences caused by various variations in capital structure, tax position, depreciation, amortization and certain other items that we believe are not representative of our core business.

For more information regarding the use of non-GAAP financial measures, including reconciliations of these measures to the most recent comparable GAAP financial measures, we refer you to today’s earnings release. In addition, this call is being webcast. An archived version will be available shortly after the call ends on the Investor Relations portion of the company’s website @goosehead.com. With that, I’d like to turn the call over to our Chairman and CEO, Mark Jones.

Mark Jones: Thanks Dan, and welcome to everyone on the call. We have started to see very tangible results from our efforts to upgrade much of the senior and middle leadership teams and managed the business in a smarter more sophisticated and scalable way. I am really proud of how well our team is working together with singular focus on winning and creating value. We delivered an exceptional first quarter of 2023 with strong top and bottom line growth. Total revenue increased 40% compared to the prior year quarter. Core revenue grew 42% and premium, the best indicator of future revenue growth, increased 41% during the quarter. Our adjusted EBITDA margin expanded approximately 1500 basis points. While we expect to see some continued headwind in the housing market, we have more than overcome this with better, more focused execution, taking advantage of industry turbulence to gain market share.

Additionally, premium pricing will likely remain a tailwind for us throughout most of 2023 as carriers take rate to try and restore their underwriting profitability. We are very fortunate to have chosen a business with stable demand across virtually all economic backdrops. If you live somewhere or drive something, you need the product we sell. We’ve been thoughtful in where we play in the value chain of our industry, in the segment we believe has the greatest potential for consistent strong economics and we operate among a competitor set that cannot adequately meet the needs of insurance buyers due to lack of one or more critical elements; product choice, industry leading technology and knowledgeable and professional sales and service agents.

In addition to being in the right place in the value chain, our results are the product of a number of varied deliberate decisions. Our clear focus on upgrading our human capital to the team needed to profitably scale our business as we transition into a large corporation, relentless disciplined execution against our strategy, proactive management to take advantage of economic turbulence. For example, our ongoing efforts to gain share have allowed us to grow lead flow by 55% despite the housing market slowdown of more than 20% over the last year. We’re being much more strategic about utilizing and optimizing company resources and doing more with less. A great example of this in the current quarter was in corporate sales where we grew new business premium by 3% year-over-year, while at the same time rationalizing headcount by 44% as we manage out unproductive agents.

We’re returning to the recruiting strategy that made us remarkable in the first place, one focused on quality over quantity and that is grounded in principles of hard work, innovation, teamwork, exceptionalism, and in integrity in delivering for our clients’ needs. All of this is enabling us to drive strong top and bottom line growth with expanding margins. We continue to see a strong rebound in performance in corporate sales. Q1 new business productivity per agent was up 55% from the same period last year with new business productivity for agents with us less than one year up 88%. Corporate sales recruiting on key college campuses is progressing well and we have strong high quality classes that will be joining us in June and throughout the rest of the summer and early fall.

The quality threshold is very high with only about 5% of people interviewing with us receiving an offer and our close rates on offers have more than doubled. Our value proposition to campus hires is truly extraordinary with a clear path to becoming a business owner as a Goosehead franchisee with very significant wealth creation opportunities after what is essentially a paid apprenticeship at corporate. We expect this to drive strong and high quality growth over time in the development of seasoned agents eligible to become franchise owners. The retooling of our franchise business to focus on quality agencies is progressing. We continue to rationalize the base to remove unproductive franchisees that consume resources but don’t contribute meaningfully to revenue or follow our model.

We anticipate the turnover to peak by the end of Q2 and for franchise churn to begin to normalize again at that point. Franchise recruiting has been reorganized to focus tightly on an ideal candidate profile in specific geographies we believe represent the most attractive opportunities for us leveraging sophisticated digital marketing campaigns with a leaner more cost effective and productive sales force. We’re focusing our investment of our intellectual capital to support agencies that are scaling their business. For example, the Pinto Agency in Miami just hit an important milestone surpassing 25,000 policies in force. They represent a great model of what we would like to help many of our other franchises emulate. We couldn’t be more proud of Jonathan and Mike Pinto as our partners.

A key area of support we’re providing is assisting with recruiting producers for franchisees. This began in the third quarter of last year when we placed five producers, ramped up to 11 producers in Q4, 18 in Q1 of this year, and we anticipate placing at least 40 producers with franchisees in the second quarter of this year and roughly 150 to 200 for the year. Historically, each of these producers have been generating equivalent revenue to launching 1.7 new agencies, producers that have started this year tracking above historical productivity closer to what we expect from corporate account executives. We continue to execute on our plan to convert at least 30 corporate sales agents into franchisees this year. We launched seven in Q1 and continued to see very strong demand from top producing corporate agents.

One of these agents to recently launch a franchise is Jessica McNally, a former corporate sales manager. Jessica launched in January and is personally producing over $20,000 a month in new commissions. She has already hired two producers who had completed training in March and were among the most productive agents in their training class. Remember that franchisees who convert from corporate perform like they are on steroids and are approximately six times as productive as an average new franchise. In Jessica’s case, it’s more like adding eight to 10 new agencies. Over time we plan to ramp up the number of corporate conversions. We anticipate they will drive a large portion of our growth in the franchise business, which we expect to be highly profitable.

Mark Miller will discuss our digital marketing and technology progress in more detail, but just to share a couple of highlights, we have added significant talent and the team is now executing with much higher velocity in quality. Quote To Issue remains the top priority and we are tracking to our plan to have several major carriers fully offerable on QTI this year. Tech improvements to Aviator, our proprietary comparative rating application, has driven strong productivity gains with both higher close rates and package rates, which we also expect to help strengthen retention. We are pleased with the results of our digital marketing efforts, which are now producing a substantial volume of high quality cost effective leads, and we’re excited to further leverage these capabilities later this year to take full advantage of our emerging QTI capability.

N5B Capital, my: We added John O’Connor, our General Counsel about a year ago. He has been working closely with Ryan in all facets of our legal department. John is a 10-year veteran of Weil, Gotshal and extremely well qualified and prepared to take over our legal team and become Corporate Secretary. Overall, we are very happy with our start to 2023 and what we expect to be a strong year for profitable growth for Goosehead. I’d like to thank our incredible team for their efforts and turn the time over to Mark Miller.

Mark Miller: Thanks, mark, and good afternoon everyone. Last quarter, I outlined our strategic priorities for 2023, which included improving overall corporate and franchise new business productivity, upgrading our recruiting and talent development for both corporate and franchise distribution, investing in our service function to protect our profitable renewal base, expanding digital marketing efforts to drive cross selling in other referral business, and are improving our technology platform to support core business growth and expanding distribution through partnerships. I’m very pleased with the progress we’ve made around these strategic priorities and I’m excited about the positive energy these initiatives are generating across the organization.

Currently, a significant portion of my time is focused on recruiting and building a high performing franchise business. We believe thoughtful expansion of our franchise business represents one of the greatest opportunities to create outsized returns as we build high quality scale franchises in every city in America. We’ve done a good job in attracting many talented and successful franchise owners over the years. Today many of these owners have thriving businesses with strong revenue and profitability growth. However, going forward, we are adjusting our recruiting approach to improve the long-term health of the entire franchise community. For the next phase of our franchise evolution, we have resized, refocused and restructured our franchise development team and aligned it with our marketing and franchise operations.

Together the goal is to target the right type of franchise owners and the right geographies. We’re recruiting perspective owners with the passion and perseverance to build long-term growth assets. We’re also directing franchise launches toward areas with favorable product and demographic characteristics. Today, five states account for roughly 65% of our franchise revenue and we have a huge untapped potential in many states where Goosehead currently has low penetration such as Arizona, Colorado, Georgia, Minnesota, North and South Carolina, Utah, and Washington State, just to name a few. While we have highly successful existing franchises in states like California, Florida, New York, and Texas, we have been slowing launches in these geographies as current product access challenges have made it difficult for new franchises to thrive.

We believe that over time market forces will self-correct and these geographies will once again represent excellent opportunities for franchise ownership. I see a point in the future where we could have up to 50 or more mega franchises across the U.S. with many producers in each one and thousands of smaller growing franchises. A large part of this expansion strategy will be driven by our dedicated recruiting efforts for franchises, additional business operations, training and support, and the increasing launch of corporate agents into franchises that have demonstrated the ability to ramp new businesses and scale at accelerated paces. During the quarter, we launched 83 new franchises and closed 109 underperforming franchises that were not following our model.

Importantly, these underperforming franchises only accounted for about 1% of new business. We’re also seeing early signs of improvement from this quality over quantity approach. Our first quarter franchise launches are pacing 33% better on new business production than franchises launched in the first quarter a year ago. While all of these efforts are slowing operating franchise growth from historical levels, I’m confident that this will be more than offset over time by higher productivity and higher franchise success rates. Today, our top corporate and franchise agents generate similar levels of productivity. However, our average franchise agents with greater than one year of tenure are roughly 40% less productive than equivalent corporate agents.

We will strive to meaningfully close that gap over time. Turning to other areas in the business. On the corporate side of the business, we’re seeing the highest agent productivity levels in recent company history, total corporate agent productivity in Q1 increased 55% year-over-year. For agents less than one year we are seeing 88% year-over-year growth. These exceptional levels of productivity are allowing us to generate 95% of last year’s production with 44% less headcount and helping fuel our rapid margin expansion. We’ve seen a pronounced cultural shift in corporate sales over the past several months, that gives us confidence that we’re adding significant number of high quality college graduates back to the business this summer. Overall, I couldn’t be more pleased with the rapid transformation of the corporate sales function and the trajectory of this team for the rest of the year.

When I joined a year ago, our service agents were delivering high quality experiences for clients as evidenced by our industry leading net promoter scores, but we had fallen behind on headcount and our call wait times had reached unacceptable levels. Today, I’m pleased to report that our average service call wait times are down 70% from the peak in the middle of 2022. Now we’re beginning to optimize the cost structure through ongoing technology initiatives and increased outsourcing on non-client facing service functions. One of our most significant differentiators continues to be our technological advantage. During the quarter, we added 15 engineers to our technology team significantly increasing our output capabilities. The cornerstone of this advantage is our proprietary Aviator platform, which drives significant productivity improvements for our agents.

While QTI remains our most notable technology investment in the first quarter, we delivered a number of additional enhancements to Aviator, which are driving increased bind and package rates. We continue to relentlessly focus on the agent interface to provide efficient tools that allow our agents to deliver the best client experience in the industry. In the second quarter, we expect to fully integrate a large language artificial intelligence chat bot with Aviator. We believe this integration will allow our agents to rapidly access vast amounts of insurance related information and quickly answer client questions. In future quarters we anticipate expanding this integration to our digital agents so that our clients can have access to the same resource.

On QTI we remain confident that we will have a number of meaningful carriers with Quote To Issue capabilities this year. The momentum in our partnership organization is building rapidly and our business development pipeline continues to grow. Earlier this week, we announced the strategic partnership with Vivint Smart Home, a leading smart home security company with 1.9 million customers. This partnership demonstrates how Goosehead’s geographic reach, innovative technology and choice model differentiate us from the competitors and allow our partners to embed adjacent high value add services into their existing go-to-market motions. We believe this partnership will further simplify the process of protecting and securing homes for clients and help to reduce claims and losses for the benefit of both clients and carrier partners.

We continue to be in various stages of discussions with several potential partners across a variety of industries. I’m extremely excited about the potential of our partnerships with Vivint and our other continued technology and partnership progress. Our digital cross-selling efforts are also driving revenue lift and we expect further benefit as we leverage our new Quote To Issue capabilities. Cross-sold new business through digital marketing is up double digit sequentially and quickly becoming a powerful lever for new business consistency and lead diversification. We also know this cross-selling motion is also a critical initiative in lifting client retention rates as adding an additional line of business increases customer retention by several years.

I’m extremely happy with the operational improvements we have achieved over the past year. I’m even more excited about the improvements to come that we believe will allow us to drive significant and sustained revenue and earnings growth as we become a larger company in the personal lines universe. With that, let me turn it over to Mark Jones, Jr.

Mark Jones Jr.: Thanks, mark and hello to everyone on the call. We are very pleased to be seeing continued improvement in productivity and earnings power from the strategic decisions we are implementing. We expect these changes to drive further momentum over time as we drive consistent high levels of revenue and earnings growth. Our premium in the first quarter, the leading indicator of future revenue, increased 41% to $638 million. This includes franchise premiums of $491 million, up 44% and corporate premiums of $147 million, up 33% from a year ago. We are operating in a segment of the value chain that is naturally hedged, which creates strong and consistent results and insulates us from the challenges that carriers or captive agencies face.

Pricing in the personal lines market continues to accelerate as we saw premium retention in the first quarter of 102% versus 100% in the fourth quarter and 94% a year ago compared to our strong client retention of 88%. As carriers recovered their underwriting profitability through premium increases, we should see premium retention trend back towards client retention. However, as pricing stabilizes, more carrier product becomes available in the most challenging markets, which we believe will further power growth and contingent commissions should return to historical averages. Our policies enforced at quarter end was $1.4 million, up 23% from a year ago, as our actions to improve productivity have a near-term impact on PIF growth. We would expect some slowing of the PIF growth rate in the second quarter, but we expect that the growth rate will stabilize and begin to reaccelerate as we move through the back half of the year.

Total revenue for the quarter was $58 million, an increase of 40% compared to the prior year period. This includes core revenue of $52 million, up 42% in the quarter, driven by high levels of client retention, increasing productivity and PMC pricing momentum. Contingent commissions in the quarter were $1.9 million compared to $1.8 million a year ago. We continue to expect contingent commissions to be about 40 basis points of premium for the full year with the majority hitting in the third and fourth quarter as carrier profitability challenges persist and prevent significant contingency growth. We are continuing to improve the quality of our operating franchise force and prospective franchise additions. In the quarter, we launched 83 franchises as we continued to balance our robust pipeline with higher standards of quality in our recruiting and more targeted geographies.

We terminated our transfer at 109 underperforming franchises in the quarter, representing about a 31% annualized churn rate. We expect churn to remain high in the second quarter before beginning to trend down gradually towards our historical levels of 10% to 15%. Importantly, this trend of underperforming franchises remains a de minimus piece of new business generated at about 1%. Operating franchise count at quarter end was 1,387 as our culling actions for quality are impacting the overall unit growth. We could see some further near-term slowing in the growth rate of operating franchises due to expected culling efforts in the second quarter and higher recruiting standards. However, we believe total franchise producer growth and increasing productivity will more than offset this over time.

Our total franchise producer count at quarter end was 2098 up 10% from 1,912 a year ago and down slightly from the 2,101 at year end. Our expectation is for growth in the total franchise producers to accelerate particularly in the back half of the year as our franchise recruiting team places producers with our most successful agencies, more corporate conversions launch and begin hiring and our culling of underperforming franchises normalizes. We are beginning to see some new business productivity improvement from the actions of our franchise development force. However, this is being partially offset by the challenging product environments which are slowing growth in a number of our larger franchise states, including Florida, California, Louisiana, and New York.

We expect pricing actions by underwriters will gradually improve and the operating environments in these states and improve product availability for our agents. Turning to our corporate distribution, we are extremely pleased with the production we are generating with significantly fewer agents. Our corporate headcount at the end of the quarter was 276, down 44% from a year ago and also down from the 320 at year end. The sequential decline in corporate headcount was partially due to the seasonality of hiring, which is negligible in the first quarter, but ramps in the second and third quarter during the on-campus recruiting season. We believe the improvements we have made in management, culture and productivity in our corporate sales team give us an improved platform to reestablish corporate growth and importantly act as a high conviction talent pool of potential mega agencies.

We expect the corporate headcount will grow from the current levels and for the full year versus year end 2022. As we have said, the level of our agent growth will be governed by trends and productivity. While the addition of new agents may temporarily impact the less than one year agent productivity, we will be closely monitoring new agent success rates to ensure they’re meeting our high standards. We believe there is significant room for further expansion in the greater than one year agent productivity over time as we continue to invest in our Aviator platform, execute successful marketing campaigns and enter into strategic partnerships to add incremental lead flow. Moving to our expenses, we performed well in the quarter as we continue to balance expense discipline with reinvestment for growth.

Total expenses excluding equity based compensation were $47.8 million, an increase of 19% from a year ago. Compensation and benefits increased 18% as we invest in top level talent and our partnership, technology, marketing and service functions, partially offset by headcount declines in corporate sales. Other G&A expense of $15.9 million was up 17% for the quarter. We expect G&A expense growth rate to increase during the year as we make additional investments in our marketing plan, see increased travel expenses related to corporate recruiting and execute on our franchise development plan. Bad debt expense for the quarter was $1.7 million compared to $0.8 million a year ago due to culling of our signed but not yet launched franchises. Adjusted EBITDA in the quarter was $10.2 million, up from $1.3 million in the year ago period.

Adjusted EBITDA margin improved approximately 1500 basis points to 18%. While we expect margin improvement for the remainder of the year, we do not expect it at the pace of the first quarter given the timing of expenses through the year and seasonality of quarterly earnings. As of March 31, 2023, we had $24.6 million of cash and cash equivalents. We had an unused line of credit of $49.8 million and total outstanding term notes payable balance of $93.1 million. We are raising our guidance for the full year 2023 as follows. Total written premiums placed for 2023 are expected to be between $2.85 billion and a $2.98 billion representing organic growth of 29% on the low end of the range to 35% on the high end of the range. Total revenues for 2023 are expected to be between $260 million and $267 million representing organic growth of 24% on the low end of the range and 28% on the high end of the range.

We expect full year adjusted EBITDA margin to expand over the full year 2022. We believe that our strong and disciplined execution of our strategy positions us well for the remainder of the year and beyond. I want to thank our team for all of their dedicated efforts in making Goosehead one of the most amazing personal lines growth companies in the industry. With that, let’s open the line up for questions. Operator?

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Q&A Session

Operator: Certainly. The first question comes from Matt Carletti from JMP. Please go ahead.

Matthew Carletti: Hey, thanks. Good afternoon.

Mark Jones: Hey Matt.

Matthew Carletti: Just a couple. Hey, how are you? Maybe I’ll start with, obviously, you touched a bit on the Vivint partnership that was just announced, but I was hoping you could go back to the couple of what would seem potentially bigger partnerships, mortgage related partnerships announced in January and maybe just give us an update. I know it’s early days still in terms of implementation, but with, three going on, four months of look back, just kind of what kind of where we stand, maybe what the reception’s been, amongst the agents. Just any color you can provide now that we have a few more months to look back.

Mark Jones: Yes, I would say those first couple were early. I mean, some good signs and we definitely bought it, brought in some new referral partners through it. I’m much more excited about and opportunistic about, or excited about the opportunity of this live Vivint partnership. I think it has a lot of potential to it. We’ve just had a few a few days of it so far. And it’s only a partial sample, but it’s been tremendous, the uplift, so I feel great about, about that one.

Mark Jones Jr.: Yes, I would think thing though, just from standpoint is, we’ve seen a big slowdown in housing market activity and yet we’ve been able to just generate the leads that we need to drive strong growth. And it’s hard to draw a straight mathematical line between the credibility that these mortgage partnerships give us and the willingness of people to work with us. But that certainly would be one tertiary benefit.

Mark Jones: Yes, I would say it just, it opens doors for us in general. As our agents go out and call on these referral partners, it gives us credibility that’s hard to measure directly, like you get from the Vivint relationship where it’s a direct lead flow that you can measure.

Matthew Carletti: That makes sense. On sticking on Vivint for a moment, I think I caught in the press release that part of it is you’ll be, acquiring their agency or plan to. Is that, I mean, how big is that kind of existing book of business? Is it anything we need to think about in terms of, thinking about as we model? Or is it small enough that it’s not material?

Mark Jones Jr.: Yes, Matt I would say, it’s accretive to us. Sure. But it’s really not the biggest piece of the partnership. I think most importantly is lead flow back and forth and helping clients get the most value out of both their homes, alarm system as well as their insurance policy. We really, it took on that to help service the clients more. There’ll be more information about that in the future.

Matthew Carletti: Okay, great. And if I could just sneak in another one kind of a similar update question, but you’ve spoken in the past about, as you build out the digital agent, efforts to get more carriers, kind of, working on a direct buying basis. Can you give us an update kind of where that stands and, what progress has been made?

Mark Miller: Yes, this is Mark Miller. I think we’ve made a ton of progress. Do you remember a quarter ago, maybe it was two quarters ago, we talked about Justin Ricketts joining the team. He came in and looked at the way, we had architected it up to this point and we decided there was easier, better ways to, and if you think about going forward, how do we add more carriers at a more rapid pace and we redesign, the platform so that the carriers could plug into it more easily. And so we wouldn’t have to recode every time we’re making great progress. We’ve got a list of about 10 carriers that are in different levels of activation at this point. Our pipeline right now looks like towards the August timeframe we would start adding more carriers on.

Then it’s pretty heavy all through the rest of the fall into the end of the year. And there will be some significant carriers in there between now and the end of the year. But we’re a bit dependent upon the carriers at this point. So we’ve built out everything we need to do on our side of the platform. Now it’s availability of resources on the carrier side.

Matthew Carletti: Great. Thanks for the color. And congrats on a very nice start to the year.

Mark Jones Jr.: Thank you, Matt.

Mark Jones: Thanks, Matt.

Operator: The next question comes from Mark Hughes from Truist. Please go ahead.

Mark Hughes: Thank you very much. Good afternoon. You mentioned the states where it’s tough to place business, I think because of the pricing and regulatory environment. How much of a restraint on growth would you say that is?

Mark Jones: And it certainly in places like California where carrier product is really not available, if you’re a new agent trying to launch there, I think that has a significant headwind for growth specifically with franchisees. That’s why we’re being more targeted with where we are placing agencies with our recruiting efforts. So I also think that that yields kind of future growth as the product market opens back up and premium rates start to normalize and carriers get profitability back. And that’s the kind of beautiful thing about our business is that, like we said in our prepared remarks, it is very naturally hedged. So as soon as premium rates start to stabilize and carriers are making money, again, the environments where we’re seeing the most challenges will become extremely favorable and we’ll be the best partner for any carrier out there.

Mark Hughes: A question on the renewal royalty fees, it’s pretty steady sequentially between the fourth quarter and the first quarter. Historically, you’ve had a step up between Q4 and Q1. You’ve got a very strong pricing that is helping you out. Was there anything in that number, and again, thinking the progression from Q4 and Q1 that that was unique or different this quarter?

Mark Jones:

calling:

Mark Hughes: Yes, and when you call those agents that you still retain those that renewal book, is that correct?

Mark Jones: Yes, and sometimes they’ll sell it to another franchisee and if there’s not a buyer out there, then they, that hits to our corporate book. Yes.

Mark Hughes: Okay, great. Thank you.

Operator: The next question comes from Michael Zaremski from BMO. Please go ahead.

Michael Zaremski: Hey, thanks. Maybe I’m digging into some of the, the positive dynamics that, you talked about in terms of the well, I guess maybe not thinking about it positively, but like the culling of some of the of the agents and also the, the franchisees converting from corporate or, on steroids in terms of productivity. Just curious of some of these actions or is there any things you want to call out that are providing a good short term boost to profit margins that we should be thinking through over the course of the year? And just so, we may be thinking out into 2024, we so we don’t get kind of over our skis in terms of just thinking about the dynamics and the margin improvement and as future quarters come on.